CIVEO CORPORATION You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q. Reverse Share Split OnNovember 19, 2020 , we effected a reverse share split where each twelve issued and outstanding common shares were converted into one common share (Reverse Share Split). Our common shares began trading on a reverse share split adjusted basis onNovember 19, 2020 . All common share and per common share data included in this quarterly report have been retroactively adjusted to reflect the Reverse Share Split. See Note 1 - Description of Business and Basis of Presentation to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion. Overview and Macroeconomic Environment We provide hospitality services to the natural resources industry inCanada ,Australia and theU.S. Demand for our services can be attributed to two phases of our customers' projects: (1) the development or construction phase; and (2) the operations or production phase. Historically, initial demand for our hospitality services has been driven by our customers' capital spending programs related to the construction and development of natural resource projects and associated infrastructure, as well as the exploration for oil and natural gas. Long-term demand for our services has been driven by natural resource production, maintenance and operation of those facilities as well as expansion of those sites. In general, industry capital spending programs are based on the outlook for commodity prices, economic growth, global commodity supply/demand dynamics and estimates of resource production. As a result, demand for our hospitality services is largely sensitive to expected commodity prices, principally related to oil, metallurgical (met) coal, liquefied natural gas (LNG) and iron ore. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in 19 --------------------------------------------------------------------------------Canada ,Australia , theU.S. and other markets, including governmental measures introduced to fight climate change or to help slow the spread or mitigate the impact of COVID-19. Our business is predominantly located in northernAlberta, Canada ;British Columbia, Canada ;Queensland, Australia ; andWestern Australia . We derive most of our business from natural resource companies who are developing and producing oil sands, met coal, LNG and iron ore resources and, to a lesser extent, other hydrocarbon and mineral resources. Approximately 64% of our revenue is generated by our lodges inCanada and our villages inAustralia . Where traditional accommodations and infrastructure are insufficient, inaccessible or cost ineffective, our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee-per-person-per- day basis that covers lodging and meals and is based on the duration of customer needs, which can range from several weeks to several years. Generally, our core Canadian oil sands and Australian mining customers are making significant capital investments to develop their prospects, which have estimated reserve lives ranging from ten years to in excess of 30 years. Consequently, these investments are primarily dependent on those customers' long-term views of commodity demand and prices. The spread of COVID-19 and the response thereto have negatively impacted the global economy. The actions taken to mitigate the spread of COVID-19 and the risk of infection have altered, and are expected to continue to alter, governmental and private-sector policies and behaviors in ways that have had a significant negative effect on oil consumption, such as government-imposed or voluntary social distancing and quarantining, reduced travel and remote work policies. Additionally, global oil prices dropped to historically low levels in March andApril 2020 due to severely reduced global oil demand, high global crude inventory levels, uncertainty around timing and slope of worldwide economic recovery after COVID-19 related economic shut-downs and effectiveness of production cuts by major oil producing countries, such asSaudi Arabia ,Russia and theU.S. Inmid-April 2020 , OPEC+ (the combination of historicalOPEC members and other significant oil producers, such asRussia ) announced production cuts of up to approximately 10 million barrels per day. However, oil prices remained at depressed levels throughout most of 2020, before modest improvement late in the year and into early 2021. Prices are expected to remain relatively volatile throughout 2021. The economic disruption caused by the spread of COVID-19 and decline in the price of and demand for oil have impacted the activity in the Canadian oil sands, and we have seen a decrease in demand for rooms by our oil sands customers. The reduction in the occupancy at our Canadian oil sands lodges negatively impacted our occupancy in 2020 and the first quarter of 2021 and could continue to negatively impact our business if oil prices continue to remain volatile. Despite the aforementioned negative impact of COVID-19 on the global economy, the impact on the Australian mining industry in 2020 was relatively muted. Due to strong Chinese steel demand, supply disruptions in other countries and limited COVID-19 cases inAustralia , Australian met coal and iron ore activity was relatively buoyant in 2020 and the beginning of 2021. We continue to closely monitor the COVID-19 situation and have taken measures to help ensure the health and well-being of our employees, guests and contractors, including screening of individuals that enter our facilities, social distancing practices, enhanced cleaning and deep sanitization, the suspension of nonessential employee travel and implementation of work-from-home policies, where applicable.Alberta, Canada . InCanada , Western Canadian Select (WCS) crude is the benchmark price for our oil sands customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate (WTI) crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar) and recent actions by theAlberta provincial government to limit oil production from the province. Historically, WCS has traded at a discount to WTI, creating a "WCS Differential," due to transportation costs and capacity restrictions to move Canadian heavy oil production to refineries, primarily along theU.S. Gulf Coast . The WCS Differential has varied depending on the extent of transportation capacity availability. Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile assets and to improve take-away capacity for Canadian oil sands producers over the longer term. While these pipeline projects, includingKinder Morgan's Trans Mountain Pipeline (TMX), have recently received incremental regulatory approvals, it is still not certain if any of the proposed pipeline projects will ultimately be completed. Certain segments of the TMX pipeline have begun construction; however, the construction timeline continues to be delayed due to the lack of agreement between the Canadian federal government, which supports the pipeline projects, and theBritish Columbia provincial government. The Canadian federal government acquired TMX pipeline in 2018, approved the expansion of the project and is currently working through the revised construction timeline. 20 -------------------------------------------------------------------------------- WCS prices in the first quarter of 2021 averaged$46.28 per barrel compared to a low of$19.73 in the second quarter of 2020 and a high of$49.93 in the second quarter of 2018. The WCS Differential decreased from$15.35 per barrel at the end of the fourth quarter of 2020 to$10.26 at the end of the first quarter of 2021. In 2018, the Government ofAlberta announced it would mandate temporary curtailments of the province's oil production. However, monthly production limits were put on hold inDecember 2020 until further notice, allowing operators to produce freely at their discretion while the government monitors production. Should forecasts show storage inventories approaching maximum capacity, the government may reintroduce production limits. The curtailment initially resulted in a narrowing WCS Differential inDecember 2018 , which increased in 2019 before narrowing again in the first quarter of 2020. As ofApril 26, 2021 , the WTI price was$61.91 and the WCS price was$49.71 , resulting in a WCS Differential of$12.20 . Together with the initial spread of COVID-19, the depressed price levels of both WTI and WCS materially impacted 2020 maintenance and production spending and activity by Canadian operators and, therefore, demand for our hospitality services. While some of our Canadian oil sands customers conducted maintenance projects in the third quarter 2020, activity was negatively impacted by the current environment. Customers began increasing production activity in the fourth quarter of 2020 and into the first quarter of 2021. Continued uncertainty, including about the impact of COVID-19, and commodity price volatility and regulatory complications could cause our Canadian oil sands and pipeline customers to reduce production, delay expansionary and maintenance spending and defer additional investments in their oil sands assets. Additionally, if oil prices do not improve or stabilize, the resulting impact could continue to negatively affect the value of our long-lived assets.British Columbia, Canada . OurSitka Lodge supports the LNG Canada project and related pipeline projects (see discussion below). From a macroeconomic standpoint, LNG demand continued to grow despite the COVID-19 pandemic, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. Accordingly, the current view is additional investment in LNG supply will be needed to meet the expected long-term LNG demand growth. Currently,Western Canada does not have any operational LNG export facilities. LNG Canada (LNGC), a joint venture amongShell Canada Energy , an affiliate of Royal Dutch Shell plc (40 percent), and affiliates ofPETRONAS , through its wholly-owned entity,North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), is currently constructing a liquefaction and export facility inKitimat, British Columbia (Kitimat LNG Facility).British Columbia LNG activity and related pipeline projects are a material driver of activity for ourSitka Lodge , as well as for our mobile assets, which are contracted to serve several portions of the related pipeline construction activity. The actual timing of when revenue is realized from the Coastal Gas Link pipeline andSitka Lodge contracts could be impacted by any delays in the construction of the Kitimat LNG Facility or the pipeline, such as protest blockades and the COVID-19 pandemic. In lateMarch 2020 , LNGC announced steps being taken to reduce the spread of COVID-19, including reduction of the workforce at the project site to essential personnel only. This resulted in a reduction in occupancy at ourSitka Lodge during the second quarter of 2020, before returning to expected levels in the second half of 2020. In lateDecember 2020 ,British Columbia's public health officer issued a health order limiting workforce size at all large industrial projects across the province, including LNGC. This order once again reduced occupancy at ourSitka Lodge in the first quarter of 2021, and we expect occupancy to remain subdued until this health order is lifted or relaxed.Australia . InAustralia , 82% of our rooms are located in theBowen Basin ofQueensland, Australia and primarily serve met coal mines in that region. Met coal pricing and production growth in theBowen Basin region is predominantly influenced by the levels of global steel production, which increased by 10% during the first three months of 2021 compared to the same period of 2020. As ofApril 26, 2021 , met coal spot prices were$111 per metric tonne. Long-term demand for steel is expected to be driven by global infrastructure spending and increased steel consumption per capita in developing economies, such asChina andIndia , whose current consumption per capita is a fraction of developed countries. In 2020, the impact of the outbreak of COVID-19 led to a high level of uncertainty for demand of iron ore and met coal. However, an increase in global infrastructure spending to stimulate economies is expected to support demand for raw materials, particularly met coal and iron ore. Currently,China andAustralia are in a trade dispute that has led toChina implementing a trade embargo on Australian coal.China has historically accounted for approximately 22% ofAustralia's met coal exports. The continuing uncertainty in the Chinese demand for Australian met coal has led to volatile Australian met coal spot pricing. The Chinese trade embargo and volatile Australian met coal spot pricing have created a shuffling of global export trade flows. If this dispute continues, it could continue to impact pricing volatility, and demand for Australian met coal and consequently lead to reduced occupancy at our Australian villages. 21 -------------------------------------------------------------------------------- Activity inWestern Australia is driven primarily by iron ore production, which is a key steel-making ingredient. As ofApril 26, 2021 , iron ore spot prices were$184.43 per metric tonne. Our integrated services business provides catering and managed services to the mining industry inWestern Australia . We have contracts to manage customer-owned villages inWestern Australia which primarily support iron ore mines in addition to gold, lithium and nickel mines. We believe iron ore prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable. Met coal and iron ore prices to date have remained at levels that should support the current levels of occupancy in ourAustralia villages and the customer locations that we manage under our integrated services business. Accordingly, we plan to continue focusing on enhancing the quality of our operations, maintaining financial discipline, proactively managing our business as market conditions continue to evolve.U.S. OurU.S. business supports oil shale drilling and completion activity and is primarily tied to WTI oil prices in theU.S. shale formations in thePermian Basin , the Mid-Continent, the Bakken and the Rockies. During 2019, theU.S. oil rig count and associated completion activity decreased due to the oil price decline in late 2018 and early 2019 coupled with other market dynamics negatively impacting exploration and production (E&P) spending, finishing the year at 677 rigs. In 2020, theU.S. oil rig count and associated completion activity further decreased due to the global oil price decline discussed above. Only 324 oil rigs were active at the end of the first quarter of 2021.The Permian Basin remains the most activeU.S. unconventional play, representing 68% of the oil rigs active in theU.S. at the end of the first quarter of 2021. The lowerU.S. rig count and decline in oil prices resulted in decreasedU.S. oil production from an average of 11.3 million barrels per day in 2020 to an average of 11.1 million barrels per day at the end of the first quarter of 2021. As ofApril 23, 2021 , there were 343 active oil rigs in theU.S. (as measured by Bakerhughes.com). With the recent volatility in oil prices and a resulting reduction in spending by E&P companies, we have exited the Bakken and reduced our presence in the Rockies regions for ourU.S. mobile assets. Those assets have either been sold or transported to ourPermian Basin and Mid-Continent district locations. This process is underway and we expect it to be completed during the first half of 2021.U.S. oil shale drilling and completion activity will continue to be dependent on sustained higher WTI oil prices, pipeline capacity and sufficient capital to support E&P drilling and completion plans. In addition, consolidation among our E&P customer base in theU.S. has historically created short-term spending and activity dislocations. Should the current trend of industry consolidation continue, we may see activity, utilization and occupancy declines in the near term. Recent Commodity Prices. Recent WTI crude, WCS crude and met coal pricing trends are as follows: Average Price (1) Hard WTI WCS Coking Coal Quarter Crude Crude (Met Coal) ended (per bbl) (per bbl) (per tonne) Second Quarter through April 26, 2021$ 61.20 $ 50.17 $ 111.95 3/31/2021 58.13 46.28 127.95 12/31/2020 42.63 31.34 109.37 9/30/2020 40.90 31.15 113.30 6/30/2020 27.95 19.73 120.27 3/31/2020 45.38 27.92 156.17 12/30/2019 56.85 37.94 141.39 9/30/2019 56.40 43.88 160.25 6/30/2019 59.89 47.39 204.78 3/31/2019 54.87 44.49 203.30 12/31/2018 59.32 25.66 223.02 9/30/2018 69.61 41.58 188.46 6/30/2018 67.97 49.93 189.41 3/31/2018 62.89 37.09 228.82
(1)Source: WTI crude prices are from
22
--------------------------------------------------------------------------------
Foreign Currency Exchange Rates. Exchange rates between the U.S. dollar and each
of the Canadian dollar and the Australian dollar influence our U.S. dollar
reported financial results. Our business has historically derived the vast
majority of its revenues and operating income (loss) in Canada and Australia .
These revenues and profits/losses are translated into U.S. dollars for U.S. GAAP
financial reporting purposes. The following tables summarize the fluctuations in
the exchange rates between the U.S. dollar and each of the Canadian dollar and
the Australian dollar:
Three Months Ended
March 31,
2021 2020 Change Percentage
Average Canadian dollar to U.S.
dollar $0.790 $0.745 0.05 6.0%
Average Australian dollar to U.S.
dollar $0.773 $0.658 0.12 17.5%
As of
March 31, 2021 December 31, 2020 Change Percentage
Canadian dollar to U.S. dollar $0.795 $0.785 0.01 1.3%
Australian dollar to U.S. dollar $0.761 $0.773 (0.01) (1.6)%
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
Capital Expenditures. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the price of and demand for crude oil, met coal, LNG and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities. We currently expect that our 2021 capital expenditures, exclusive of any business acquisitions, will total approximately$20 million to$25 million , compared to 2020 capital expenditures of$10.1 million . We may adjust our capital expenditure plans in the future as we continue to monitor customer activity and the impact of COVID-19. See "Liquidity and Capital Resources" below for further discussion of 2021 capital expenditures. 23 -------------------------------------------------------------------------------- Results of Operations Unless otherwise indicated, discussion of results for the three months endedMarch 31, 2021 , is based on a comparison to the corresponding period of 2020. Results of Operations - Three Months EndedMarch 31, 2021 Compared to Three Months EndedMarch 31, 2020 Three Months Ended March 31, 2021 2020 Change ($ in thousands) Revenues Canada$ 61,885 $ 79,348 $ (17,463) Australia 59,637 49,113 10,524 U.S. and other 3,908 10,331 (6,423) Total revenues 125,430 138,792 (13,362) Costs and expenses Cost of sales and services Canada 51,885 64,272 (12,387) Australia 42,903 29,553 13,350 U.S. and other 5,022 9,488 (4,466) Total cost of sales and services 99,810 103,313 (3,503) Selling, general and administrative expenses 14,181 13,937 244 Depreciation and amortization expense 21,269 25,502 (4,233) Impairment expense - 144,120 (144,120) Other operating income 71 989 (918) Total costs and expenses 135,331 287,861 (152,530) Operating loss (9,901) (149,069) 139,168 Interest expense and income, net (3,362) (5,579) 2,217 Other income 4,914 25 4,889 Loss before income taxes (8,349) (154,623) 146,274 Income tax (expense) benefit (1,076) 8,811 (9,887) Net loss (9,425) (145,812) 136,387 Less: Net income attributable to noncontrolling interest 59 258 (199) Net loss attributable to Civeo Corporation (9,484) (146,070) 136,586 Less: Dividends attributable to preferred shares 478 468 10
Net loss attributable to
(146,538)
We reported net loss attributable toCiveo for the quarter endedMarch 31, 2021 of$10.0 million , or$0.70 per diluted share. We reported net loss attributable toCiveo for the quarter endedMarch 31, 2020 of$146.5 million , or$10.43 per diluted share. As further discussed below, net loss included (i) a$93.6 million pre-tax loss ($93.6 million after-tax, or$6.67 per diluted share) resulting from the impairment of goodwill in ourCanada segment included in Impairment expense, (ii) a$38.1 million pre-tax loss ($38.1 million after-tax, or$2.71 per diluted share) resulting from the impairment of long-lived assets in ourCanada segment included in Impairment expense and (iii) a$12.4 million pre-tax loss ($12.4 million after-tax, or$0.89 per diluted share) resulting from the impairment of long-lived assets in ourU.S. segment included in Impairment expense. Revenues. Consolidated revenues decreased$13.4 million , or 10%, in the first quarter of 2021 compared to the first quarter of 2020. This decrease was primarily due to (i) reduced occupancy at our Canadian lodges related to the COVID-19 pandemic, (ii) reduced food service activity, as an overflow site supporting a LNG-related project in 2020 is no longer required, (iii) decreased activity at ourWestern Australia andBowen Basin villages and (iv) lower activity levels in certain markets in theU.S. These items were partially offset by (i) increased occupancy at our Australian integrated services villages, (ii) increased mobile asset activity from a pipeline project inCanada and (iii) a stronger Australian and Canadian dollar relative to theU.S. dollar in the first quarter of 2021 compared to the first quarter of 2020. See the discussion of segment results of operations below for further information. 24 -------------------------------------------------------------------------------- Cost of Sales and Services. Our consolidated cost of sales and services decreased$3.5 million , or 3%, in the first quarter of 2021 compared to the first quarter of 2020. This decrease was primarily due to (i) reduced occupancy at our Canadian lodges related to the COVID-19 pandemic, (ii) reduced food services activity, as an overflow site supporting a LNG-related project in 2020 is no longer required, (iii) decreased activity at ourWestern Australia andBowen Basin villages and (iii) lower activity in certain markets in theU.S. These items were partially offset by increased cost of sales and services due to (i) increased occupancy at our Australian integrated services villages and increased cost of temporary labor due to ongoing labor shortages inAustralia , (ii) increased mobile asset activity from a pipeline project inCanada and (iii) a stronger Australian and Canadian dollar relative to theU.S. dollar in the first quarter of 2021 compared to the first quarter of 2020. See the discussion of segment results of operations below for further information. Selling, General and Administrative Expenses. SG&A expense increased$0.2 million , or 2%, in the first quarter of 2021 compared to the first quarter of 2020. This increase was primarily due to higher incentive compensation costs and compensation expense, partially offset by lower professional fees. Depreciation and Amortization Expense. Depreciation and amortization expense decreased$4.2 million , or 17%, in the first quarter of 2021 compared to the first quarter of 2020. The decrease was primarily due to (i) the impairment of certain long-lived assets inCanada and theU.S. during the first quarter of 2020, (ii) the extension of the remaining life of certain long-lived assets in theU.S. during the first quarter of 2020 and (iii) certain assets and intangibles becoming fully depreciated during 2020. These items were partially offset by a stronger Australian and Canadian dollar relative to theU.S. dollar in the first quarter of 2021 compared to the first quarter of 2020. Impairment Expense. Impairment expense of$144.1 million in the first quarter of 2020 included the following items: •Pre-tax impairment expense of$93.6 million related to the impairment of goodwill in our Canadian reporting unit. •Pre-tax impairment expense of$38.1 million associated with long-lived assets in our Canadian reporting unit. •Pre-tax impairment expense of$12.4 million associated with long-lived assets in ourU.S. reporting unit. Please see Note 6 - Impairment Charges to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Operating (Loss) Income. Consolidated operating loss decreased
Interest Expense and Income, net. Net interest expense decreased by$2.2 million , or 40%, in the first quarter of 2021 compared to the first quarter of 2020, primarily related to lower average debt levels and lower interest rates on term loan and revolving credit facility borrowings during 2021 compared to 2020. Other Income. Consolidated other income increased$4.9 million in the first quarter of 2021 compared to the first quarter of 2020, primarily related to the 2021 sale of a manufacturing facility and mobile assets inCanada and$2.8 million related to proceeds from theCanada Emergency Wage Subsidy (CEWS) during 2021. Income Tax (Expense) Benefit. Our income tax expense for the three months endedMarch 31, 2021 totaled$1.1 million , or (12.9%) of pretax loss, compared to an income tax benefit of$8.8 million , or 5.7% of pretax loss, for the three months endedMarch 31, 2020 . Our effective tax rate for both the three months endedMarch 31, 2021 andMarch 31, 2020 was impacted by consideringCanada and theU.S. loss jurisdictions that were removed from the annual effective tax rate computation for purposes of computing the interim tax provision. Additionally, our effective tax rate for the three months endedMarch 31, 2020 was impacted by a deferred tax benefit of$12.4 million offset by an increase of$3.4 million in the valuation allowance inCanada . Other Comprehensive Income (Loss). Other comprehensive loss decreased$46.9 million in the first quarter of 2021 compared to the first quarter of 2020, primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to theU.S. dollar. The Canadian dollar exchange rate compared to theU.S. dollar increased 1% in the first quarter of 2021 compared to a 9% decrease in the first quarter of 2020. The Australian dollar exchange rate compared to theU.S. dollar decreased 2% in the first quarter of 2021 compared to a 13% decrease in the first quarter of 2020. 25 --------------------------------------------------------------------------------
Segment Results of Operations - Canadian Segment
Three Months Ended
March 31,
2021 2020 Change
Revenues ($ in thousands)
Accommodation revenue (1) $ 46,530 $ 66,066 $ (19,536)
Mobile facility rental revenue (2) 10,499 2,508 7,991
Food service and other services revenue (3) 4,856 10,774
(5,918) Total revenues$ 61,885 $ 79,348 $ (17,463) Cost of sales and services ($ in thousands) Accommodation cost$ 38,336 $ 48,055 $ (9,719) Mobile facility rental cost 6,774 3,257
3,517
Food service and other services cost 4,121 10,015
(5,894)
Indirect other costs 2,654 2,945
(291)
Total cost of sales and services$ 51,885 $ 64,272
Gross margin as a % of revenues 16.2 % 19.0 %
(2.8) %
Average daily rate for lodges (4)$ 97 $ 92
Total billed rooms for lodges (5) 480,066 708,323
(228,257)
Average Canadian dollar to
(1)Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented. (2)Includes revenues related to mobile assets for the periods presented. (3)Includes revenues related to food services, laundry and water and wastewater treatment services for the periods presented. (4)Average daily rate is based on billed rooms and accommodation revenue. (5)Billed rooms represents total billed days for owned assets for the periods presented. Our Canadian segment reported revenues in the first quarter of 2021 that were$17.5 million , or 22%, lower than the first quarter of 2020. The strengthening of the average exchange rate for the Canadian dollar relative to theU.S. dollar by 6% in the first quarter of 2021 compared to the first quarter of 2020 resulted in a$3.7 million period-over-period increase in revenues. Excluding the impact of the stronger Canadian exchange rate, the segment experienced a 26% decrease in revenues. This decrease was driven by reduced occupancy at our lodges related to the COVID-19 pandemic and reduced food services activity, as an overflow site supporting a LNG-related project in 2020 is no longer required. Partially offsetting these items, revenue was favorably impacted by increased mobile asset activity from a pipeline project. Our Canadian segment cost of sales and services decreased$12.4 million , or 19%, in the first quarter of 2021 compared to the first quarter of 2020. The strengthening of the average exchange rate for the Canadian dollar relative to theU.S. dollar by 6% in the first quarter of 2021 compared to the first quarter of 2020 resulted in a$3.1 million period-over-period increase in cost of sales and services. Excluding the impact of the stronger Canadian exchange rate, the decreased cost of sales and services was driven by reduced occupancy at our lodges related to the COVID-19 pandemic and reduced food services activity, as an overflow site supporting a LNG-related project in 2020 is no longer required. These decreases were partially offset by increased mobile asset activity from a pipeline project and increased costs related to enhanced safety measures implemented during the COVID-19 pandemic. Our Canadian segment gross margin as a percentage of revenues decreased from 19.0% in the first quarter of 2020 to 16.2% in the first quarter of 2021. This was primarily driven by increased costs related to enhanced safety measures implemented during the COVID-19 pandemic, as well as reduced operating efficiencies at our lodges due to lower occupancy, partially offset by increased mobile asset activity and related operating efficiencies. 26 --------------------------------------------------------------------------------
Segment Results of Operations - Australian Segment
Three Months Ended
March 31,
2021 2020 Change
Revenues ($ in thousands)
Accommodation revenue (1) $ 33,675 $ 32,585 $ 1,090
Food service and other services revenue (2) 25,962 $ 16,528 $ 9,434
Total revenues $ 59,637 $ 49,113 Cost of sales and services ($ in thousands) Accommodation cost$ 17,105 $ 14,995 $ 2,110 Food service and other services cost 24,297 13,707
10,590
Indirect other cost 1,501 851
650
Total cost of sales and services$ 42,903 $ 29,553
Gross margin as a % of revenues 28.1 % 39.8 %
(11.8) %
Average daily rate for villages (3)$ 79 $ 69
Total billed rooms for villages (4) 424,666 471,840
(47,174)
Australian dollar to U.S. dollar$ 0.773 $ 0.658
(1)Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented. (2)Includes revenues related to food services and other services, including facilities management for the periods presented. (3)Average daily rate is based on billed rooms and accommodation revenue. (4)Billed rooms represent total billed days for owned assets for the periods presented. Our Australian segment reported revenues in the first quarter of 2021 that were$10.5 million , or 21%, higher than the first quarter of 2020. The strengthening of the average exchange rate for Australian dollars relative to theU.S. dollar by 17% in the first quarter of 2021 compared to the first quarter of 2020 resulted in a$8.9 million period-over-period increase in revenues. Accordingly, the increase in the average daily rate is entirely attributable to the strengthening of theAustralia dollar. Excluding the impact of the stronger Australian exchange rate, the Australian segment experienced a 3% increase in revenues largely due to increased occupancy at our integrated services villages, partially offset by decreased activity at ourBowen Basin andWestern Australia villages. Our Australian segment cost of sales and services increased$13.4 million , or 45%, in the first quarter of 2021 compared to the first quarter of 2020. The strengthening of the average exchange rate for Australian dollars relative to theU.S. dollar by 17% in the first quarter of 2021 compared to the first quarter of 2020 resulted in a$6.4 million period-over-period increase in cost of sales and services. Excluding the impact of the stronger Australian exchange rate, the increase in cost of sales and services was largely driven by increased occupancy at our integrated services villages and increased staff costs as a result of a hospitality labor shortage inAustralia , which has been exacerbated by state and international border closures due to the COVID-19 pandemic. State and international border closures have affected the number of staff available which has subsequently led to an increased reliance on more expensive temporary labor hire resources and has placed upward pressure on wages for permanent staff as competitors compete for a smaller labor pool. Our Australian segment gross margin as a percentage of revenues decreased to 28.1% in the first quarter of 2021 from 39.8% in the first quarter of 2020. This was primarily driven by our integrated services business, which has a service-only business model, and therefore results in lower overall gross margins than the accommodation business and reduced occupancy at ourBowen Basin andWestern Australia villages. The gross margin has also been negatively impacted by the increased cost of temporary labor due to ongoing labor shortages. 27 --------------------------------------------------------------------------------
Segment Results of Operations -
Three Months Ended
March 31,
2021 2020 Change
Revenues ($ in thousands) $ 3,908 $ 10,331 $ (6,423) Cost of sales ($ in thousands)
Gross margin as a % of revenues (28.5) % 8.2 % (36.7) %
OurU.S. segment reported revenues in the first quarter of 2021 that were$6.4 million , or 62%, lower than the first quarter of 2020. This decrease was due to reduced occupancy at our West Permian and Killdeer lodges, reducedU.S. drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business and reduced activity in our offshore fabrication business as a project was completed in the first quarter of 2020. OurU.S. segment cost of sales decreased$4.5 million , or 47%, in the first quarter of 2021 compared to the first quarter of 2020. This decrease was due to reduced occupancy at our West Permian and Killdeer lodges, reducedU.S. drilling activity in the Bakken, Rockies, Mid-Continent and West Permian markets affecting our wellsite business and reduced activity in our offshore fabrication business as a project was completed in the first quarter of 2020. OurU.S. segment gross margin as a percentage of revenues decreased from 8.2% in the first quarter of 2020 to (28.5)% in the first quarter of 2021 primarily due to reduced activity at our lodges, wellsite markets and offshore fabrication business and reduced operating efficiencies at lower activity levels.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages, purchasing or leasing land, and for general working capital needs. In addition, capital has been used to repay debt and fund strategic business acquisitions. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Credit Agreement and proceeds from equity issuances. In the future, we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions, refinance debt or retire preferred shares.
The following table summarizes our consolidated liquidity position as of
March 31, 2021 December 31, 2020
Lender commitments (1) $ 167,300 $ 167,300
Borrowings against revolving credit capacity (57,063) (63,556)
Outstanding letters of credit (3,280) (4,487)
Unused availability 106,957 99,257
Cash and cash equivalents 5,455 6,155
Total available liquidity $ 112,412 $ 105,412
(1)As of
Cash totaling$12.8 million was provided by operations during the three months endedMarch 31, 2021 , compared to$20.8 million provided by operations during the three months endedMarch 31, 2020 . During the three months endedMarch 31, 2021 and 2020,$0.1 million was used in working capital and$3.0 million was provided by working capital, respectively. The decrease in cash provided by working capital in 2021 compared to 2020 is largely due to decreased accounts payable balances, partially offset by decreased accounts receivable balances inAustralia . 28 -------------------------------------------------------------------------------- Cash was provided by investing activities during the three months endedMarch 31, 2021 in the amount of$3.3 million , compared to cash used in investing activities during the three months endedMarch 31, 2020 in the amount of$2.6 million . The increase in cash provided by investing activities was primarily due to proceeds from the sale of our manufacturing facility and mobile assets inCanada during the three months endedMarch 31, 2021 . Capital expenditures totaled$3.4 million and$2.7 million during the three months endedMarch 31, 2021 and 2020, respectively. We expect our capital expenditures for 2021, exclusive of any business acquisitions or any growth capital expenditures, to be approximately$20 million to$25 million , which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts. Whether planned expenditures will actually be spent in 2021 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the economic environment in our industry improve and the transaction economics are deemed to be attractive to us. We continue to monitor the COVID-19 global pandemic and the responses thereto, the global economy, the prices of and demand for crude oil, met coal and iron ore and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future. Net cash of$16.7 million was used in financing activities during the three months endedMarch 31, 2021 primarily due to net repayments under our revolving credit facilities of$6.7 million , repayments of term loan borrowings of$8.9 million and$1.1 million used to settle tax obligations on vested shares under our share-based compensation plans. Net cash of$15.6 million was used in financing activities during the three months endedMarch 31, 2020 primarily due to net repayments under our revolving credit facilities of$6.1 million , repayments of term loan borrowings of$8.1 million and$1.4 million used to settle tax obligations on vested shares under our share-based compensation plans.
The following table summarizes the changes in debt outstanding during the three
months ended
Balance at December 31, 2020 $ 251,086
Borrowings under revolving credit facilities 78,628
Repayments of borrowings under revolving credit facilities (85,319)
Repayments of term loans (8,872)
Translation 2,537
Balance at March 31, 2021 $ 238,060
We believe that cash on hand and cash flow from operations will be sufficient to
meet our anticipated liquidity needs in the coming 12 months. If our plans or
assumptions change, including as a result of the impact of COVID-19 or the
decline in the price of and demand for oil, or are inaccurate, or if we make
acquisitions, we may need to raise additional capital. Acquisitions have been,
and our management believes acquisitions will continue to be, an element of our
long-term business strategy. The timing, size or success of any acquisition
effort and the associated potential capital commitments are unpredictable and
uncertain. We may seek to fund all or part of any such efforts with proceeds
from debt and/or equity issuances or may issue equity directly to the sellers.
Our ability to obtain capital for additional projects to implement our growth
strategy over the longer term will depend on our future operating performance,
financial condition and, more broadly, on the availability of equity and debt
financing. Capital availability will be affected by prevailing conditions in our
industry, the global economy, the global financial markets and other factors,
many of which are beyond our control. In addition, any additional debt service
requirements we take on could be based on higher interest rates and shorter
maturities and could impose a significant burden on our results of operations
and financial condition, and the issuance of additional equity securities could
result in significant dilution to shareholders.
Credit Agreement
As ofMarch 31, 2021 , our Credit Agreement (as then amended to date, the Credit Agreement) provided for: (i) a$167.3 million revolving credit facility scheduled to mature onMay 30, 2023 , allocated as follows: (A) a$10.0 million senior secured revolving credit facility in favor of certain of ourU.S. subsidiaries, as borrowers; (B) a$122.3 million senior secured revolving credit facility in favor ofCiveo and certain of our Canadian subsidiaries, as borrowers; and (C) a $35.0 million senior secured 29 -------------------------------------------------------------------------------- revolving credit facility in favor of one of our Australian subsidiaries, as borrower; and (ii) a$194.8 million term loan facility scheduled to mature onMay 30, 2023 for certain lenders in favor ofCiveo . As ofMarch 31, 2021 , we had outstanding letters of credit of$1.2 million under theU.S. facility,$0.1 million under the Australian facility and$2.0 million under the Canadian facility.
As of
See Note 8 - Debt to the notes to the unaudited consolidated financial statements included in Item 1 of this quarterly report for further discussion.
Dividends
The declaration and amount of all potential future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board of Directors deems relevant. In addition, our ability to pay cash dividends on common or preferred shares is limited by covenants in the Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in the future, the amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will pay a dividend in the future. The preferred shares we issued in theNoralta acquisition are entitled to receive a 2% annual dividend on the liquidation preference (initially$10,000 per share), paid quarterly in cash or, at our option, by increasing the preferred shares' liquidation preference, or any combination thereof. Quarterly dividends were paid in-kind onMarch 31, 2021 , thereby increasing the liquidation preference to$10,616 per share as ofMarch 31, 2021 . We currently expect to pay dividends on the preferred shares for the foreseeable future through an increase in liquidation preference rather than cash.
Off-Balance Sheet Arrangements
As of
Contractual Obligations
For additional information about our contractual obligations, refer to "Liquidity and Capital Resources-Contractual Obligations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . As ofMarch 31, 2021 , except for net repayments under our revolving credit facilities, there were no material changes to the disclosure regarding our contractual obligations made in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Critical Accounting Policies
For a discussion of the critical accounting policies and estimates that we use in the preparation of our consolidated financial statements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. 30
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